Swiss vacuum valve maker VAT Group could enjoy a longer-than-usual semiconductor upcycle thanks to surging demand from artificial intelligence, according to analysts at Berenberg. But even with that brighter outlook, the bank is not telling investors to buy the stock.
In a research note published Wednesday, Berenberg raised its price target on VAT Group to 695 Swiss francs from 640 and lifted its profit forecasts. The bank argues that AI is stretching the typical chip cycle, with the current expansion potentially lasting around three years rather than the usual pattern of roughly two years up followed by one down.
Why the chip cycle could be longer
Semiconductor demand has historically moved in cycles, driven by waves of investment in new capacity and shifts in end-user demand. The current cycle, however, is being fueled by the rapid build-out of AI infrastructure, which requires powerful chips and the memory to support them.
Berenberg specifically points to memory needs, especially DRAM—the type of memory used as working memory in servers—as ramping faster than expected. Advanced logic chips, the processors that run AI workloads, are also in strong demand. This combination, the bank says, could keep orders flowing to VAT Group for longer than in past cycles.
VAT Group makes high-precision vacuum valves that are essential in semiconductor manufacturing. These valves control the environment inside chipmaking equipment, where even tiny impurities can ruin a batch of chips. As chipmakers expand capacity and upgrade their fabs, they need more of these components.
What the hold rating means
Despite the rosier outlook, Berenberg kept its hold rating on the stock. The reason: valuation. After a strong run, VAT Group's shares already trade at a level that the bank considers pricey, even with orders expected to remain strong.
For everyday investors, a hold rating is a signal that the stock may have already priced in much of the good news. It doesn't mean the company is in trouble—far from it. Rather, it suggests that the potential upside from here may be limited relative to the risks.
Berenberg's move is part of a broader trend of analysts adjusting their views on companies tied to the AI boom. As demand for AI chips and related equipment surges, many suppliers are seeing their profit forecasts raised. But with share prices climbing, some analysts are cautioning that expectations may be running ahead of reality.
What it means for investors
For investors, the key takeaway is that VAT Group is well-positioned to benefit from a longer AI-driven chip cycle, but the stock's current price already reflects much of that optimism. The raised price target of 695 francs suggests the bank sees some room for gains, but not enough to warrant a buy recommendation.
Investors should also consider the broader context. The semiconductor industry is cyclical, and even a longer upcycle will eventually turn. Companies like VAT Group that supply the industry are highly sensitive to these swings. When chipmakers cut back on spending, demand for vacuum valves can drop sharply.
Berenberg's view that the cycle could last three years is more optimistic than the historical average, but it is not a guarantee. AI demand could slow, memory prices could fall, or geopolitical tensions could disrupt supply chains. Any of these could shorten the cycle and hurt VAT Group's earnings.
For those already holding the stock, the hold rating is a sign to keep an eye on valuation and earnings momentum. For those considering an entry, it may be worth waiting for a better price or more clarity on the cycle's length.
As always, it's important to remember that analyst ratings are just one input. They reflect a single firm's view and can change quickly. Investors should do their own research and consider their own risk tolerance before making decisions.
In the meantime, the AI-driven demand for chips shows no signs of slowing, and companies like VAT Group are likely to remain in the spotlight. Whether the cycle lasts two years or three, the underlying trend toward more computing power and memory appears firmly in place.
